A volatile week is expected with inflation figures on the data front

After a surprise jobs report last week, we are about to see a plethora of inflation data. This data will include CPI, PPI, and unit labour costs. Notably, the Fed pays close attention to Friday's consumer sentiment, which provides consumer expectations about inflation. Should inflation continue to rise, the Fed's forecast of 3.25%-3.5% for year-end inflation could move higher.

A volatile week ahead

According to the inflation report, inflation pressures are expected to slow in July. However, suppose the July inflation report winds up being a hot one. In that case, expectations for the September FOMC meeting could swing further toward a 75 basis point rate increase. It is expected that the monthly reading for July will show a rise of 0.2%, a reduction from the 1.3% reading in June. As a result, it is predicted that the headline year-over-year number will ease from 9.1% to 8.8%. Additionally, the University of Michigan will release a preliminary report on consumer sentiment, which is expected to remain stable.

This week, the final inflation data is the only notable report to come out of the EU. There will also be a release of CPI figures for China on Wednesday, and inflation expectations remain broadly benign at 2.50% YoY. There is a risk that the inflation story will eventually catch up with China, where the growth rate is moderate.

The week will also feature appearances by Evans, Kashkari, and Daly from the Fed. Traders will want to know how many Fed members are preparing for a slower pace of tightening policy ahead of the September policy announcement.

The recession is on track

Bond yields in the eurozone fell back after gaining following Friday's jobs report. Despite Moody's lowering Italy's rating outlook, Italian bonds continued to rally. There is still an inversion in the 10-Year U.S. Treasury note, a leading indicator of a recession in the country. There was little change in the leading indices - the S&P 500 Index, Dow Jones Index, and Nasdaq 100 Index - although they remained within their similar falling channels. While the Russell 2000 had broken its topside, it is still below the January-to-March trough within the broader downward trend.

Dollar

Even though the greenback bounced off the bottom of its long-term rising channel, it closed above its short-term falling channel. This could indicate that investors have shifted their outlook to believe that the Fed will keep raising interest rates in the future.

Gold

In fact, the yellow metal broke through the falling channel and the 50-day moving average. Despite this, the precious metal closed slightly below its M.A. This week's inflation data will be of high interest to gold traders and those who are watching the dollar.